Protecting Blended Families: Spousal Trusts and Joint Partner Trusts
Estate planning in a blended family often involves a delicate balancing act. If you have remarried, you likely have two competing priorities: you want to ensure your current spouse is financially secure after you pass away, but you also want to guarantee that your remaining wealth will eventually flow down to your children from a previous relationship.
Many couples rely on blind faith – simply leaving their entire estate to their surviving spouse with the informal understanding that the spouse will eventually pass the remaining assets to the stepchildren. However, once the assets are in the surviving spouse’s name, they are legally free to do anything they want with them. In fact, the assets will form part of the surviving spouse’s estate and may end up being left to their own children!
To solve this potential problem and ensure that your assets remain with your children, we will often suggest the use of a trust. The two most common options are the Testamentary Spousal Trust and the Joint Partner Trust.
Option 1: The Testamentary Spousal Trust (Created on Death)
A Testamentary Spousal Trust is created through the instructions in your will and only comes into existence after you pass away.
Instead of leaving your assets directly to your surviving spouse, the assets are transferred into this trust. This happens on a tax-deferred basis, meaning no capital gains are triggered on your death.
Your surviving spouse is the only person legally permitted to receive the income from the trust while they are alive. Upon your spouse’s eventual passing, the remaining trust assets automatically transfer to the residual beneficiaries – your children.
Because the assets are personally yours when you die, they must pass through your estate and will be subject to probate fees (the Ontario Estate Administration Tax) before funding the trust.
Option 2: The Joint Partner Trust (Created During Your Lifetime)
A Joint Partner Trust achieves the exact same family protection, but it is an inter vivos (living) trust created while you are still alive. To utilize this strategy, the creator of the trust must be at least 65 years old.
You transfer your assets (like investment portfolios or real estate) into the trust during your lifetime, which similarly to the above, is done on a tax-deferred basis.
You and your spouse are the only people legally permitted to receive the income from the trust during your lifetimes. When the surviving spouse passes away, the remaining trust assets automatically transfer to the residual beneficiaries – your children.
Because the trust (not you) owns the assets, those assets do not form part of your personal estate when you die. They bypass the probate courts entirely, saving your heirs tens of thousands of dollars in probate fees and allowing for a private, immediate distribution of funds.
Spousal Trust vs. Joint Partner Trust: Quick Comparison
| Testamentary Spousal Trust | Joint Partner Trust | |
|---|---|---|
| When created | On death (via your will) | During your lifetime (inter vivos) |
| Minimum age | None | 65 years old |
| Tax-deferred transfer | Yes | Yes |
| Avoids probate | No – assets pass through your estate first | Yes – assets bypass probate entirely |
| Income recipient | Surviving spouse only (during their lifetime) | Both spouses (during their lifetimes) |
| Remaining assets go to | Your children (residual beneficiaries) | Your children (residual beneficiaries) |
Frequently Asked Questions
What is a Joint Partner Trust in Canada?
A Joint Partner Trust is a living (inter vivos) trust available to Canadians aged 65 and older. You transfer assets into the trust during your lifetime on a tax-deferred basis. Both you and your spouse can receive income from the trust while alive, and the remaining assets pass directly to your chosen beneficiaries — bypassing probate entirely.
What is the difference between a Spousal Trust and a Joint Partner Trust?
A Testamentary Spousal Trust is created through your will and takes effect on death. A Joint Partner Trust is created during your lifetime. The key practical difference is probate: a Spousal Trust must pass through your estate (and pay probate fees), while a Joint Partner Trust bypasses probate, saving your heirs thousands of dollars.
Can a Joint Partner Trust protect assets for children from a previous relationship?
Yes. This is one of its primary uses. Because the trust’s terms are locked in when you create it, the remaining assets automatically flow to your named beneficiaries (your children) when the surviving spouse passes away — regardless of what the surviving spouse may otherwise wish to do with those assets.
Does a Joint Partner Trust avoid probate in Ontario?
Yes. Because the trust (not you personally) owns the assets, they do not form part of your estate at death and are not subject to Ontario’s Estate Administration Tax (probate fees).
How We Can Help
Deciding between a Testamentary Spousal Trust and a Joint Partner Trust requires an analysis of your age, your asset types, and your probate exposure. If either trust is drafted or administered improperly, it can violate the requirements of the Income Tax Act and trigger a massive tax bill.
At NG Chartered Professional Accountants, our team works alongside your estate lawyer to evaluate which trust structure makes the most financial sense for your blended family. We manage the tax-deferred rollovers, handle the ongoing annual T3 Trust Returns, and monitor to ensure the trust remains fully compliant with the CRA through our Final Estate Taxation services so you can have total peace of mind.
Our London, Ontario accounting firm is currently accepting new clients. If you would like more information on real estate taxation or the services we offer, please visit our contact us page. You can also learn more about our services here and get to know our London, Ontario team here.
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